The stock market might seem to be the domain of big-money investors, but you can start trading stocks for very little money even if you're someone of modest means. Your first stock purchase could cost well under $100, and you can add to your purchase in small increments. Once you understand all the ways you can invest even small amounts of money in the stock market, you may consider stashing your extra cash in stocks.
Stock Mutual Funds
Many mutual funds require a minimum investment of $25 to $1,000. Because mutual funds charge you fees based on a percentage of your investment, your costs will be low in proportion to your investment amount. For example, if a fund charges you 3 percent of your investment as a sales charge and you start with $25, you would only pay 75 cents as a fee to get started. You would pay the same fee for each additional $25 you put into the fund. When mutual funds list their minimum investment, they refer not only to the initial investment but to any money you add after that. A fund with a $250 minimum would require at least $250 each time you add to your investment.
You can buy one share of stock if you want to. You can buy one share of what the Securities and Exchange Commission calls a "penny stock" for less than $5. Many established companies offer shares in the $15 to $25 range. When it comes to buying one share of stock, you could purchase a share for anywhere from a few cents up to $25.
To buy a stock, you’ll have to open a discount brokerage account online. Some of these have no minimum investment requirement, though you will pay a fee every time you trade. To calculate your minimum investment, say you want to buy one share of stock for $20 and the online broker charges $7 per trade. In this example, you’ll need $27 to get started if you use a no-minimum broker.
Dividend Reinvestment Plan
A dividend reinvestment plan -- or DRIP -- lets you buy stock directly from a company. You pay no brokerage fee for your purchase. You can get started in DRIPs for as little as $10. You can also add to your DRIP periodically and pay no brokerage fee. Companies such as IBM, Rubbermaid, Coca-Cola, AT&T; and McDonald's offer DRIPs. That means you can put your money into major corporations for the same cost as putting it in your piggy bank.
What You Get for Your Money
If you can meet mutual fund minimums, a professional money manager handles the fund. He makes all the decisions about which stocks to buy. Your investment is diversified across many stocks. If one stock falls, others may rise to make up for it. With a trading account, you get research tools. You can examine a stock’s history and the current financial condition of the company, and you can read analysts’ reports about the prospects for the stock. Trading accounts often come with educational tools provided by investing experts. With DRIPs, you’re on your own. You can conduct independent research, but the company you invest in won’t advise or educate you.
- Yahoo Finance: What Is a DRIP?
- American Association of Individual Investors: Online Discount Brokers
- Smart Money: Three Funds With a Small Minimum Investment
- Brokerage Review: Best Online Stock Trading Brokerage Accounts for Beginners in 2012-2013
- SuzeOrman: Mutual Funds With Min Investment of $25-$100
- SEC: Penny Stock Rules
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